TAMING INDIAN INFLATION

High and persistent inflation has presented serious macroeconomic challenges in India in recent years, increasing the country’s domestic and external vulnerabilities. A number of factors underpin India’s high inflation. This book analyzes various facets of Indian inflation—the causes, consequences, and policies being implemented to manage it. Several chapters are devoted to analyzing and managing food inflation, given its significance in driving overall inflation dynamics in India. Building on this analysis of inflation dynamics, some chapters discuss the role of monetary policy in taming inflation, which is relevant for the country given the economic and social costs of its high and persistent inflation. The authors document the costs, as well as the spillovers of Indian inflation to neighboring countries. The role of monetary policy in combating inflation is also explored. The authors find that having a clear, easy to understand, and transparent rule can help with the formation of accurate and realistic inflation expectations. Moreover, implementing such a rule can help build and enhance the credibility of the monetary authority and thereby increase the effectiveness of monetary policy in achieving and maintaining price stability.